Do you still believe freemium has not run its course?

Let me start by reiterating my past objections about giving Apps away for free in the hope of getting attention now and monetization later. Call it by whatever portmanteau you wish – freemium etc. or use the justification that free is free marketing. It does not matter if customers are not hiring your App for a job they are willing to pay for and you do not take the time and effort to understand customer jobs and position your App for the right job.

The App economy tempts us all with billion customers – small percentage of a large number is still a large number. But trying to target billion customers is what SurveyGizmo CEO described as shotgun approach to marketing.

And guess what? You are not the only one with the same shotgun – the App ecosystem has made the same shotgun available to everyone. There are many just like you and their App just like yours with the same hope of converting the same 1-2% of users into paying customers.

With hundreds of thousands of games, productivity tools and other apps already on the market, and thousands more launched every week, many startups are finding that their ideas aren’t so unique after all. (source)

With all these thousands of look alike Apps, the small percentage of large number becomes small fraction of the small percentage of a large number. Which I assure you is a really small number.

The odds of striking gold in the apps business are quite long. While there are more than 800,000 mobile apps available in Apple Inc.’s App Store, only 80 of them generated more than $1 million in revenue during the fourth quarter, according to research firm Distimo

That is the chances of an App making $4 million a year is 1 in 10,000. And there is no point in trying to do expected value math here because the winner takes it all.

And it turns out Free is not even close to free marketing or to be precise marketing is not free even for free Apps. If you want any thing close to decent installs (let alone frequent usage) it takes considerable marketing resources.

In this environment, well-heeled companies with big marketing budgets hold sway.

It gets worse than Free – you end up paying users to install and tell others about the App as the App maker Mouthee found out

Mouthee ran promotions—giving out free iTunes gift cards or other gifts to users who signed up their friends—which would bring a spike in downloads, but the boost would taper off after a week or so,

Let us recap the App situation

  1. There are hundreds if not thousands with App just like yours
  2. They are free as well
  3. Free isn’t free marketing and marketing isn’t free
  4. Building passionate user base is a myth and the chances a newbie App maker without marketing resources will make it into Top 250 is less than 2%
  5. Chances your freemium App will make $4 Million a year is 1 in 10,000

Finally even when you gain millions of installs, your users can stay on free version longer than your startup can stay solvent,

There are so many startups that die with a whimper

Do you still believe freemium has not run its course?

Cast aside these fads and start with the business first principles to go from plan to profit.

Start with the customers, not your App. The App could be new but the customer needs are not. Whether it is a “bits” product with zero marginal cost or “atoms” product with non-zero marginal cost, customer needs come first. In fact, it is not a product until you have identified a set of customers whose needs you meet and who want to pay you for that value.

Make your choice. Successful strategy involves making choices. You cannot treat billion users as customers. Getting 90 percent of customers to take free Hershey’s chocolates with the hope that they will pay more for extras or will upgrade later is not a strategy.

Get your fair share of the value created. Charging for the product is still the simplest of all business models. Product and platform innovation do not mean business model innovation like freemium (which should never be called a business model). If your product adds compelling value to customers, charging for it is simply getting your fair share of the value created. You do not have to be ashamed of making a profit.

How do you go from plan to profit?

4 thoughts on “Do you still believe freemium has not run its course?

  1. Games are a major part of the app economy. Even though (successful) “free” games are free to install (which helps distribution), they are carefully designed to extract users’ entire WTP. And so it is a regular two-tier pricing as a MC of install is ~0.

    Like

  2. Sadly, I think this post is just completely off-base and uses the wrong stats to tell the story about the app store. Freemium has not only reduced the friction of customers willing to use the app, but it has expanded the overall market. Please see the App Annie link below for more on this particular top.

    http://blog.appannie.com/freemium-apps-ios-google-play-japan-china-leaders/

    Also, in the gaming industry, it is very common for people to pay for users via advertisements. Any gaming worth their salt though will compare the cost of acquisition via advertisement versus the expected lifetime value of the user. Most will not pay more to acquire user than LTV.

    Where you might have been more successful in this argument would have been certain categories of apps. There are section where getting paid for the job could have made your point stronger. I’ve added a link from Flurry for you to chew on regarding this point.

    http://blog.flurry.com/bid/90743/App-Engagement-The-Matrix-Reloaded

    Like

  3. Buzz
    I agree as well. I didn’t mean to imply that charge for undifferentiated Apps that add no value but focus on compelling customer needs for which they are willing to pay and deliver them a better offering than any other alternative
    -rags

    Like

  4. I agree with your thinking for the most part, but I think the reality is that on any App store right now there is a billion gazillion free[mium] apps. So assuming your app’s value-add is not revolutionary or unique (in other words, your app does something many others do, but slightly better), there is no way you can charge for it. I, as a consumer on Play Store, never ever buy anything unless I had a chance to try it. Apps I like best are, in fact, freemium (pay for extra features) or trialware.

    Like

Comments are closed.